First, I don't think that this was a good acquisition.
Second, I am glad Mr. Ballmer is packing it in.
A corollary to the second thought: is it possible that Mr. Ballmer could leave sooner rather than later?
I particularly like the statement of Stanford's Jeffrey Pfeffer: "When executives 'can't figure out what to do, they go buy something, particularly when they have a lot of cash."
Microsoft Corp. has been a very good company and has been a good investment in the past. Under Bill Gates the company created a product and gains a competitive advantage on its competitors. Under the guidance of the cutthroat Mr. Gates the company competed fiercely and was able to create a sustainable advantage due to scale, network effects and a savagely competitive culture.
Microsoft helped to establish time-pacing as a corporate strategy for the tech industry that kept products and new generations of products coming to market on a regular basis so as to constantly stay one-up on its competition.
Microsoft first missed the Internet boom, but was able to almost re-invent itself on a dime with Internet Explorer that in the 2002 and 2003 period had a 95 percent usage share of the market.
Since then, Microsoft has exploited its market share in both software products and Internet usage to generate lots and lots of cash. Its return on equity continues to remain high, with Microsoft recently reporting a 30.09 percent figure, and its cash flow, pouring out substantial amounts of cash... hence one reason for the big cash balances on its balance sheet.
Microsoft did raise a substantial amount of cash during the period of low interest rates, gathering in $3.75 billion in May 2009 and another $4.75 billion in the fall of 2011. (For more on this see "The Worldwide Cash Buildup in Corporations.") The major interest in raising these funds was for future acquisitions, or, if not for future mergers, the funds could be used for stock buybacks.
It seems, however, that, from such a "gangbusters" beginning, Microsoft lost its way. Since I associate the culture in an institution as the primary consequence of the chief executive officer, I cannot excuse Mr. Ballmer from the responsibility for what Microsoft has become. And, he has been in the CEO position for a long enough time that he cannot avoid being held accountable for what has happened.
To me, the acquisition of Nokia's handset operations is just a final example (I hope there are not more coming) of what the current Microsoft culture has become. Here are two tired old warhorses getting together. They know each other well and this doesn't bode well for what will happen after the combination.
One rule I believe in when it comes to mergers and acquisitions is that the lead organization in the combination can promise the other organization anything before the two companies get together but that leader must become a "real bastard" after the deal is consummated.
I don't see this happening.
Furthermore, there seems to be no urgency in the product culture of Microsoft... or in this division of Nokia. Microsoft seems to be living off of the cash flow, which results from previous superior performance. This has apparently convinced them that they are "still No. 1" where the evidence in terms of execution certainly does not support this conclusion. This attitude has lulled them into a world where they can point to a continuing stream of cash flow, which constantly enhances their cash balances, of large cash balances that they can use to make "wise decisions," and of a product superiority that is matched by no one.
How often have we seen this kind of attitude build up in an organization that has either "jumped the shark" or is about to "jump the shark?"
Finally, there seems to be no indication that any of the players in this transaction have an idea about what is going on in the modern marketplace. Recent research points to aggressive companies focusing upon "arenas and not on industries like Microsoft is apparently doing. What the Nokia purchase seems to represent is Ballmer's and hence Microsoft's focus on industries... a thing of the past in rapidly changing environments. Furthermore, Microsoft does not seem to be seeking out and exploiting opportunities of transient competitive advantages. (See for example my review of the book "The End of Competitive Advantage" by Rita Gunther McGrath.)
Where Microsoft was once a leader in market dynamics it now seems incredibly flummoxed.
In terms of discussing Mr. Ballmer, I have discussed him elsewhere. See "Discussing Mr. Ballmer."
Microsoft needs a change in its chief executive and one, I believe, that does not lead to an "old hand" like Stephen Elop, who left Microsoft's executive core three years ago. I have seen such a choice, too many times in the past, look solid and productive only to result in disappointment because the new person is not able to sufficiently change the culture of the organization he/she takes over. This situation seems like a re-run ... and not a home run.
And in terms of the corollary statement I made at the start of this post: I hope that Mr. Ballmer does not leave us anything more in the way of his legacy. He looks like a person who wants to justify his worth in the days remaining to his tenure. So far what he has produced has not impressed either me or the stock market. I hope that he doesn't have any more "surprises" to lay on us before he takes his final walk out the door.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.